This Is How You Can Easily Boost Your Returns with Dividends

Enjoy investing in dividend shares? Do you know that instead of watching your dividends drip into your bank account every quarter, you can actually use those payouts to significantly boost your returns? Here’s how it works.

Let’s say you had invested in telecommunications operator M1 Ltd (SGX: B2F) at the start of November 2009 at a price of S$1.77. Five years later, M1’s shares have gained 110% to its current price of $3.65.

If you add in the gains coming from M1’s dividends over the last five years, your returns would be around 140%. But, if you had reinvested all your dividends over that period back into M1’s shares, your total returns would have become more than 160% – that’s an additional 20% in cumulative returns that you could have gotten just by reinvesting your dividends.

When you reinvest your dividends, you are buying even more shares in a company which can in turn generate additional income. This thus creates a snowball effect which can be very significant as time passes.

Foolish Summary

It is great to receive dividends from your investments to spend. However, it is even better if you can reinvest those dividends as they can significantly boost your returns. The next time you see a dividend check coming, do think hard about what you would like to do with it.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.